AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2011 (8) TMI 1147
X X X X Extracts X X X X
X X X X Extracts X X X X
....1961 in respect of the Custom Duty paid on import of components which were used for export by the end of the year. The Assessing Officer disallowed the claim by holding that the assessee is entitled to duty drawback on accrual basis and this amount will be revenue neutral, therefore, no deduction to the assessee is allowable. On the other hand, the claim of the assessee is that the amount of such duty draw back cannot be said to have automatically accrued until such claim is accepted by Duty Drawback Directorate. Till the same is accepted, it remains a mere claim. The authorities have the right to accept the claim or reject the claim. Reliance was placed on the provisions of Section 75A of the Customs Act, 1962 r/w Customs and Central Excise Duties Drawback Rules, 1995. The procedure mentioned in the aforesaid provision were explained which require submission of information and documents for determination of the amount or rate of drawback, verifying the correctness or otherwise of any claim for drawback. It is only after submission of the claim along with complete enclosures and necessary verification by the authorized officer, the payment of drawback is made to the credit of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee. The facts of the case being the same, in the light of this discussion, the appeal of the assessee is allowed. 9. The second ground in the assessee's appeal relates to disallowance of Rs. 71,63,89,449 representing the amount of excise duty paid on purchased inputs which is included in RG 23A by applying provisions of Section 43B of the Act on the ground that the same did not amount to payment of duty. According to the AO, RG 23A is MODVAT balance register and does not represent expenditure made by the assessee and therefore he declined to give any deduction in respect thereof. According to him, the same would be allowed as an expenditure in the year in which it is utilized. According to the assessee, the said amount represented duty payment and is allowable u/s 43B of the Act. The assessee's counsel fairly admitted that this issue is covered by the order of the Special Bench in the case of DCIT vs Glaxo Smithkline Consumer Health Care Ltd. In 107 ITD 343 and in the assessee's own case in Asstt. Year 2001-02, the said issue is decided against the assessee. The operative portion of the order for the Asstt. Year 2001-02 is as under:- "In regard to Ground no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....60A of the IT Act. It was stated by the ld. Counsel for the assessee that the decision of the Special Bench in the case of Daga Capital Management Pvt. Ltd. now stands reversed by the decision of the Hon'ble Bombay High Court (cited supra) and the disallowance framed therein was directed to be deleted in the absence of any positive finding by the Assessing Officer of incurring of any expense by the assessee. Since the matter is already before the Delhi High Court, involving the same identical issue, we think it fit to restore the matter back to the file of the AO with the direction to decide the issue afresh in the light of the binding decision of the Jurisdictional High Court. It may be pointed out to us that the Hon'ble Delhi High Court has already heard the matter and is likely to render the decision soon hereafter. The AO is therefore directed to finally dispose of the matter in the light of the decision that may become available to him on the same issue. 13. In the result, appeal of the assessee is treated to be partly allowed. 14. The first ground in the revenue's appeal relates to the disallowance of Rs. 25,73,919 comprising of PLA balances of R&D Cess on vehicles of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on is allowable in respect thereof. The submission of the assessee has been that even if aforesaid amount has to be added to the purchase account and closing stock by virtue of Section 145A, the said amount will be separately deductible in the computation of taxable income under section 43B of the Act. For this, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Berger Paints, 266 ITR 99 as also the decision of the Tribunal in the case of Sona Steering Systems Ltd. vs DCIT in ITA Nos. 103/Del and 948/Del of 1996. Apart from this, reliance was also placed on the decision of the Tribunal in the assessee's own case for AY 1999-00 and 2000-01. The ld. CIT(A) was of the view that the ITAT has already decided the issue in assessee's favour for AY 1999-00 by following the principle laid down in Berger Paints cited supra and the CIT(A) for AY 2001- 02, 2002-03 and 2004-05 has accepted similar contentions. The revenue is aggrieved. 18. We have heard both the sides and gone through the records. The assessee has been consistently following the exclusive method of accounting in respect of custom duty paid on import of components for export purposes. According....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he decision of the Allahabad High Court in the case of CIT vs C.L. Gupta 259 ITR 513 and the decision of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. 266 ITR 99. Reliance was further placed on the decision of the ITAT in the assessee's own case for AY 1999-00 and 2000-01. The CIT(A) following these decisions has accepted the assessee's claim. The revenue is aggrieved. 20. We have heard both sides and are unable to find any ground to interfere. As already stated, an identical issue came up for consideration before the ITAT for AY 1999-00 and 2000-01. The Tribunal in para 44 and 45 in aforesaid years has accepted the claim of the assessee. In the light of discussions therein, we confirm the findings of the CIT(A) on this issue. 21. The next dispute in the revenue's appeal relates to customs duty on inventory held in closing stock to the extent of Rs. 23,68,09,186/-. According to the AO, the assessee has already debited the said sum to the Profit & Loss account and correspondingly included in closing stock and the assessee is not entitled for any further deduction. However, the claim of the assessee is that although the amount stood debited to the Profit and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere. 25. The next ground in the revenue's appeal relates to acceptance by the CIT(A) of the alternative claim for withdrawal of add back of Rs. 58,32,85,322 offered during the year under consideration on account of duties and other statutory liabilities debited to Profit & loss account but claimed as deduction in preceding years on payment basis u/s 43B of the Act. 26. Ld. Counsel for the assessee stated that this issue has not been discussed by the AO in his assessment order and argued that the assessee has offered an amount of Rs. 120,47,62,835/- in its return of income on account of duties and other statutory liabilities debited to Profit & Loss Account received from government authorities but claimed as deduction in preceding years on payment basis u/s 43B. These amounts were offered to tax in the return of income as the same was claimed on payment basis u/s 43B in the preceding years. However, out of the said total amount of Rs. 120,47,62,835/- an amount of Rs. 58,32,85,322/- though claimed on payment basis in preceding years were not allowed as a deduction by the AO. The break-up of this amount given by the assessee was as under:- Item No. Item Particulars Amou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter, as could be seen in the operative part of the order of CIT(A), has been sent back to the AO for verification of all the relevant facts and in principle, the CIT(A) has followed the order of the ITAT in this regard. We do not agree that the CIT(A) went in error either in entertaining this ground or in dealing with such ground by setting aside the same to the Assessing Officer for verification of the record and claims in this regard. We also do not approve the contention of the revenue that such alternative claim of the assessee should not be accepted in the absence of the revised return filed in this regard. It has by now been accepted that all claims of the assessee which lead in the determination of proper income of taxation require to be addressed by the AO in accordance with law. In a matter of the type that we have dealt with herein, it is necessary to have a look into the record for fair determination of the lax liabilities. The CIT(A) has rightly set aside the matter for verification of the record of assessment and he has also directed to withdraw the relief allowed to the assessee by accepting this alternative claim, if deduction claimed by it for the same amount is hel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO on account of alleged excess consumption of raw materials and components. During the year under consideration, the assessee submitted before the excise authorities that the stock of some items or raw materials and components as on 31.3.2005 which were found on physical verification was less than the stock as per the stock records by Rs. 4.65 crores. It was also submitted to the excise authorities that the physical stock of some items was actually more than the stock as per stock register by Rs. 3.99 crores. On the basis of this submission of assessee, the excise authorities issued a show cause notice holding that the assessee has cleared/removed inputs valued at Rs. 4,65,02,993/- in contravention of various rules of the Cenvat Credit Rules and the Central Excise Rules, 2002. Based on the said show cause notice of excise authorities, the AO held that there is an excess consumption claimed by the assessee to the tune of Rs. 4,65,02,993 and to that extent, addition was made. It was claimed before the CIT(A) that the addition is based on simple show cause notice and the assessee is maintaining stock register on a computerized system. No discrepancy has been found in respect of said ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(A) in deleting the addition. The negative variance is only 0.06% of the total consumption of raw material and components which is well within the tolerable limits as laid down by CESTAT and in that case CESTAT held that no excise demand can be raised as the shortages were in the tolerable limits. The Tribunal appreciated the order of the CESTAT and deleted the identical addition. The order of the CIT(A), in our view, does not require any interference. The same is upheld. The addition, in our view, is misconceived and without having regard to the practical realities of the business and the magnitude of the turnover of the assessee. 35. The next dispute in the revenue's appeal relates to the disallowance made by the AO u/s 35DDA of the Act amounting to Rs. 38,63,64,348/-. 36. The facts are that the assessee company had offered two voluntary retirement schemes to its employees. The scheme was offered in the previous year 2001-02 wherein the total payment made to employees was Rs. 73,60,47,559/-. The second scheme was offered in the financial year 2003-04 wherein the total payment made to the employees was Rs. 119,57,74,181/-. The assessee company claimed deduction for these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is Elevators Co. (India) Ltd. Vs CIT 195 ITR 682 (Bom) American Express International Banking Corporation v CIT 258 ITR 601 (Bom) CIT vs Sundharam Industries Ltd. 240 ITR 335 (Mad) DCIT v Max India Ltd (2007) 112 TTJ (asr.) 726 40. After hearing both the parties and going through the records, we have no reason to interfere with the order of the ld. CIT(A) who has just followed the Tribunal order and the binding decision of the Delhi High Court in respect of the issue in question. The order of the CIT(A) on this issue is therefore confirmed by holding that the expenditure in question was incurred for business purposes of the assessee and warranted by business necessities and exigencies, such expenses cannot be subject to any arbitrary disallowance. 41. The last dispute in the revenue's appeal relates to the sales tax subsidy of Rs. 16,04,07,733/- received by the assessee company during the year under consideration. According to the assessee, the said receipt represented to be capital in nature and therefore should be excluded from the taxable income. At this stage, it may be mentioned that the assessee has included the tax concession in the gross total income of Rs. 1347,51....
X X X X Extracts X X X X
X X X X Extracts X X X X
....subsidy is also made clear by Industrial policy 1999 issued by Department of Industries, Government of Haryana which specifically state that one of the objectives of said policy, pursuant to which the said concession/subsidy granted is "attracting new investment and growth of existing industries." 20.7 Since the appellant had undertaken expansion in terms of the above Rule 28C, the High Powered Committee in a meeting on 14.06.2001 granted sales tax concession to it, whereby it was to pay 50% of the sales tax collected on sale of finished products from expanded unit and retain 50% but maximum benefit permissible was Rs. 564.35 crores. In pursuance to the above, the appellant was also issued entitlement certificate dated 01.08.2001 (enclosed at Annexure-5 of the written submission on this ground by the Ld. ARs) under rule 28C of Haryana General Sales Tax Rules, 1975 to avail sales tax concession to the extent of Rs. 564.35 crores during the period 01.08.2001 to 31.07.2015. For the instant assessment year, the company accordingly retained Rs. 16,04,07,773/- out of the sales tax collected on sale of finished products from expanded unit and, but declared the same erroneously as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent in the industrial sector. The objective of the Industrial Policy 1999 was stated to be:- a) To attract new investments and growth of existing industry; b) Generation of employment in industrial and allied sector by 20% in the next five years. To achieve the aforesaid objectives, the state government in the Industrial Policy proposed to inter alia rationalize the package of incentives, making it more effective and meaningful for speedy development of the State. 44. To monitor the implementation of the Policy, an Empowered Committee was constituted under the chairmanship of the Chief Secretary to suggest policy initiatives and for coordinating with various departments of the Government to achieve the objectives set forth in the policy. It was stated that a customized package of incentives and concessions will be provided for prestigious projects having an investment of Rs. 30 crores and above, which will be decided by a High Powered Committee. The relevant provisions for granting the subsidy, as contemplated in the Industrial Policy, 1999 are stated to be as under:- (a) attracting new investment and growth of existing industries; (b) generation of employment in industrial a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund/relief is due to him. The AO should have therefore adjudicated upon the claim of the assessee that was made during the assessment proceedings, notwithstanding the fact that there was no revised return forthcoming from the assessee. In fact, when the claim of the assessee was based on the decision of the Hon'ble Supreme Court in the case of Ponni Sugars, the AO should have discussed the issue and decided. Therefore, we do not find any infirmity in the order of the CIT(A) insofar as he proceeded to deal with the same and made these observations. Now, coming to the merits of the matter, the assessee has undertaken an expansion in terms of Rule 28C of General Sales Tax Rules 1975. The objective of the grant of subsidy by way of sales tax concession was to give assistance to the assessee for establishing a new industrial unit or for substantial expansion of an existing industrial unit. The objective of the grant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money received by the company was not in the course of trade but was of capital nature. The judgement of the House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily, such payments would have been on revenue account but since the purpose of the payment was to curtail/bliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd., this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co., the assessee was obliged to spend the money for extension of its....